SUPREME COURT OF CANADA

Continental Insurance Co. v. Dalton Cartage Co., [1982] 1 S.C.R. 164

Date: 1982-01-26

The Continental Insurance Company (Defendant) Appellant;

and

Dalton Cartage Company Limited and McPherson Warehousing Company Limited (Plaintiffs) Respondents;

and

St. Paul Fire & Marine Insurance Company (Defendant) Respondent.

File No.: 16024.

1981: December 15; 1982: January 26.

Present: Laskin C.J. and Dickson, Estey, McIntyre and Chouinard JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO

Insurance — Indemnification — Terms of contract — Whether or not terms met.

Insurance — Evidence — Exclusion clause — Onus on insurer — Balance of probabilities.

This appeal and cross-appeal arose out of two insurance policies issued to respondents, one by the appellant The Continental Insurance Company and the other by the cross-respondent St. Paul Fire & Marine Insurance Company. Respondent Dalton Cartage indemnified the owners of goods stolen from one of its trucks but never recovered. The driver was acquitted of a charge of theft. The Court of Appeal affirmed the trial decision disallowing Dalton's claim against St. Paul Fire & Marine as Dalton had not brought itself within the agreement, but allowed Dalton's claim under the Continental policy as its exclusion clause relating to infidelity was inapplicable.

Held: The appeal and cross-appeal should be dismissed.

Dalton's cross-appeal failed because Dalton did not meet the onus required to bring itself within the St. Paul insuring agreement.

Continental's appeal failed. The trial judge could properly consider the cogency of the evidence offered to support proof on a balance of probabilities. There was necessarily a matter of judgment involved in weighing

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that evidence and a trial judge was justified in scrutinizing evidence with greater care if serious allegations were to be proved by it. This was not a departure from the "balance of probabilities" standard and did not support a shifting standard. In addition, Continental did not meet the insurer's onus of proving the applicability of an exclusion clause, and its agreement equating infidelity with negligence was insupportable.

Hurst v. Evans, [1917] K.B. 352; Citizens Insurance Company v. Grand Trunk Railway Co. of Canada (1880), 25 Low. Can. Jur. 163, distinguished; Hanes v. Wawanesa Mutual Insurance Co., 1963 CanLII 1 (SCC), [1963] S.C.R. 154; Eater v. Eater, [1950] 2 All E.R. 458; Smith v. Smith and Smedman, 1952 CanLII 3 (SCC), [1952] 2 S.C.R. 312, referred to.

APPEAL and CROSS-APPEAL from a judgment of the Ontario Court of Appeal (Order of the Ontario Court of Appeal, December 18, 1979) dismissing an appeal and cross-appeal from a judgment of Keith J. Appeal and cross-appeal dismissed.

R. J. Rolls, Q.C., and Gloria Adair, for the appellant.

William P. Somers, Q.C., for the respondent Dalton Cartage Company Limited.

E. R. Murray, Q.C., for the respondent St. Paul Fire & Marine Insurance Company.

The judgment of the Court was delivered by

THE CHIEF JUSTICE—This appeal and cross-appeal arise out of claims under two policies of insurance, one issued by the appellant The Continental Insurance Company and the other issued by the cross-respondent, St. Paul Fire & Marine Insurance Company. The insured in each case were Dalton Cartage Company Limited and McPherson Warehousing Company Limited.

The Continental policy, in its relevant terms, provided for indemnity to the insured, as follows:

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(A) CARRIER'S LIABILITY:

The Legal Liability of the Insured as a Motor Truck Carrier, Bailee or Warehouseman for loss or damage to goods and merchandise accepted by the Insured while in the custody or control of the Insured:

(i) For Transit;

PERILS:

Arising from ALL RISKS of direct physical loss or damage from any external cause except as herein-after provided.

Certain losses were excluded under a separate exclusion clause which, so far as alleged to be applicable to the facts, was in these terms:

LOSSES EXCLUDED:

This Insurer shall not be liable for, nor shall this Policy cover any claims or expenses or suits for loss, damage or destruction to property caused by:

(c) Loss by infidelity and/or wrongful conversion and/or wilful and/or wrongful secretion and/or illegal sale of property by the Insured or the Insured's Employees or persons to whom the property is entrusted;

The St. Paul policy contained the following insuring agreement:

The Underwriter, in consideration of the payment of the premium, and subject to the Declarations made a part hereof, the General Agreements, Conditions and Limitations, and other terms of this Bond, agrees .to indemnify the Insured against any loss of money or other property which the Insured shall sustain through any fraudulent or dishonest act or acts committed by any of the Employees, acting alone or in collusion with others, the amount of indemnity on each of such Employees being the amount stated in Item 3 of the Declarations.

The limit of liability was established at $10,000 and covered not only regular employees but also temporary employees hired through employment agencies.

A temporary driver for Dalton, who had been employed as such on numerous occasions, was charged to drive a loaded truck to a certain warehouse, about eight miles away. The goods in the

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truck were never delivered and the vehicle was found abandoned, empty and slightly damaged. The temporary driver was ultimately arrested, charged with theft and acquitted. He was not called as a witness in Dalton's action on the two policies. The value of the lost, and presumably stolen, goods (which were never recovered) was $28,827.40 which Dalton paid to the owners.

The trial judge, Keith J., held that Dalton had to bring itself within the insuring agreement of the St. Paul policy and had failed to do so. He also held that Dalton was entitled to recover under the Continental policy unless the insurer could bring itself within the exclusion of loss by infidelity, the only applicable provision in exclusion 4(c). This, Keith J. held, the insurer failed to do and, accordingly, Dalton was entitled to recover its full loss because of a limit of liability under the Continental policy which embraced it. The Court of Appeal of Ontario affirmed the judgment of Keith J. without written reasons.

Although there was a cross-appeal by Dalton against the dismissal of its action against St. Paul, this Court readily disposed of it by finding it unnecessary to call on counsel for St. Paul to respond. The trial judge and the Court of Appeal were clearly right in concluding that the onus was on Dalton to bring itself within the St. Paul insuring agreement, and their concurrent findings that it had not done so cannot be disturbed.

Three points were taken in the main appeal. It was contended that the onus was on Dalton in this case to show that the exclusion from liability by reason of infidelity did not apply. Reliance was placed on the English case of Hurst v. Evans, [19171 K.B. 352, which, admittedly, stands on its own and has not been followed but has, rather, been criticized. Whatever its merit, it has no application here. A long standing line of authorities require an insurer, seeking solace in an exclusion from otherwise unlimited liability, to show

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that the exclusion applies. Again, there are concurrent findings, this time against Continental and the appeal on this ground fails. A second point taken in the appeal was that infidelity equates with simple negligence, a proposition which, on its face, is unacceptable. In my opinion, infidelity imports a moral element; not so negligence. The only authority cited by counsel for Continental to support its contention was Citizens Insurance Company v. Grand Trunk Railway Co. of Canada (1880), 25 Low. Can. Jur. 163, a case which, like Hurst v. Evans, supra, also admittedly stands alone. That was a judgment of the Quebec Court of Queen's Bench on a policy which conditioned liability of the insurer that a certain employee should "honestly diligently and faithfully" discharge his duties and that he should pay over to his employer such money as he receives for and from his employer. The employee received money of the company and did not account for most of it. It appears that the money was stolen from the employee's office when he was out to lunch. There was no allegation of dishonesty against him. The court found that he was guilty of negligence and that, accordingly, the insurer was liable under the policy. This case hardly supports the proposition that infidelity is simply a matter of negligence. It is much more. Here, however, the policy covered diligence and it was on this obligation to pay that the insured succeeded.

The main point in the appeal was the third point raised which was that the trial judge and the Court of Appeal had misstated the burden of proof and, indeed, were applying a sliding burden of proof rather than a straight burden of proof on a balance of probabilities. The issue was raised because of the way the trial judge dealt with the provisions respecting fraud and dishonesty in the St. 'Paul policy and infidelity in the Continental policy. There are two observations on the question of

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burden of proof by Keith J., as follows (at pp. 82-83 of the Appeal Case):

In order to fix St. Paul with liability, the Plaintiff Dalton must satisfy the onus resting upon it, to establish upon the balance of probabilities and by a degree of proof commensurate with the gravity of the allegation that requires proof, namely that the loss was occasioned by a fraudulent or dishonest act on the. part of Morkin. The act alleged in the Proof of Loss is theft of the goods. (See Hanes v. Wawanesa Mutual Insurance Co., (1963) 1963 CanLII 1 (SCC), S.C.R. 154 [sic] per Ritchie, J., at pp. 160-161 et seq.)

It will be seen at once that in order to escape liability, the same onus of proof rests on The Continental to bring itself within the terms of the specific exclusion, as rests on the Plaintiff Dalton to bring itself within the insuring agreement contained in the St. Paul policy.

Having regard to the paucity of evidence, am I justified in finding as a fact that Morkin was party to and hence responsible for the theft of the goods? There is no doubt that the goods were stolen, and there is no doubt that Morkin was accused of that theft and acquitted.

Admittedly, the standard of proof that was applicable in the criminal Court was proof beyond a reasonable doubt that Morkin was the thief. The standard of proof in the civil case has been repeatedly held to be somewhat less, and how much less is a matter that depends on all the circumstances and the gravity of the accusation.

Where there is an allegation of conduct that is morally blameworthy or that could have a criminal or penal aspect and the allegation is made in civil litigation, the relevant burden of proof remains proof on a balance of probabilities. So this Court decided in Hanes v. Wawanesa Mutual Insurance Co., 1963 CanLII 1 (SCC), [1963] S.C.R. 154. There Ritchie J. canvassed the then existing authorities, including especially the judgment of Lord Denning in Bater v. Bater, [1950] 2 All E.R. 458, at p. 459, and the judgment of Cartwright J., as he then was, in Smith v. Smith and Smedman, 1952 CanLII 3 (SCC), [1952] 2 S.C.R. 312, at p. 331, and he concluded as follows (at p. 164):

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Having regard to the above authorities, I am of opinion that the learned trial judge applied the wrong standard of proof in the present case and that the question of whether or not the appellant was in a state of intoxication at the time of the accident is a question which ought to have been determined according to the ,. "balance of probabilities".

It is true that apart from his reference to Barer v. Barer and to the Smith and Smedman case, Ritchie J. did not himself enlarge on what was involved in proof on a balance of probabilities where conduct such as that included in the two policies herein is concerned. In my opinion, Keith J. in dealing with the burden of proof could properly consider the cogency of the evidence offered to support proof on a balance of probabilities and this is what he did when he referred to proof commensurate with the gravity of the allegations or of the accusation of theft by the temporary driver. There is necessarily a matter of judgment involved in weighing evidence that goes to the burden of proof, and a trial judge is justified in scrutinizing evidence with greater care if there are serious allegations to be established by the proof that is offered. I put the matter in the words used by Lord Denning in Bater v. Bater, supra, at p. 459, as follows:

It is true that by our law there is a higher standard of proof in criminal cases than in civil cases, but this is subject to the qualification that there is no absolute standard in either case. In criminal cases the charge must be proved beyond reasonable doubt, but there may be degrees of proof within that standard. Many great judges have said that, in proportion as the crime is enormous, so ought the proof to be clear. So also in civil cases. The case may be proved by a preponderance of probability, but there may be degrees of probability within that standard. The degree depends on the subject-matter. A civil court, when considering a charge of fraud, will naturally require a higher degree of probability than that which it would require if considering whether negligence were established. It does not adopt so high a degree as a criminal court, even when it is considering a charge of a criminal nature, but still it does require a degree of probability which is commensurate with the occasion.

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I do not regard such an approach as a departure from a standard of proof based on a balance of probabilities nor as supporting a shifting standard. The question in all civil cases is what evidence with what weight that is accorded to it will move the court to conclude that proof on a balance of probabilities has been established.

I do not find any reversible error in the present case on burden of proof. The appeal and cross-appeal are accordingly dismissed with costs. The respondent Dalton is entitled to add his costs of the cross-appeal to those payable to it by Continental.

Appeal and cross-appeal dismissed with costs.

Solicitors for the appellant: Smiley, Allingham & Brown, Toronto.

Solicitors for the respondents Dalton Cartage Limited and McPherson Warehousing Company Limited: Cassels, Mitchell, Somers, Dutton and Winkler, Toronto.

Solicitors for St. Paul Fire & Marine Insurance Company: Cassels, Brock, Toronto.